26 U.S. Code § 104 - Compensation for injuries or sickness

Except in the case of amounts attributable to (and not in excess of) deductions allowed under section
213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include—

(1)amounts received under workmen’s compensation acts as compensation for personal injuries or sickness;

(2)the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness;

(3)amounts received through accident or health insurance (or through an arrangement having the effect of accident or health insurance) for personal injuries or sickness (other than amounts received by an employee, to the extent such amounts

(A) are attributable to contributions by the employer which were not includible in the gross income of the employee, or

(B) are paid by the employer);

(4)amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country or in the Coast and Geodetic Survey or the Public Health Service, or as a disability annuity payable under the provisions of section 808 of the Foreign Service Act of 1980; and

(5)amounts received by an individual as disability income attributable to injuries incurred as a direct result of a terroristic or military action (as defined in section
692(c)(2)).

For purposes of paragraph (3), in the case of an individual who is, or has been, an employee within the meaning of section
401(c)(1) (relating to self-employed individuals), contributions made on behalf of such individual while he was such an employee to a trust described in section
401(a) which is exempt from tax under section
501(a), or under a plan described in section
403(a), shall, to the extent allowed as deductions under section
404, be treated as contributions by the employer which were not includible in the gross income of the employee. For purposes of paragraph (2), emotional distress shall not be treated as a physical injury or physical sickness. The preceding sentence shall not apply to an amount of damages not in excess of the amount paid for medical care (described in subparagraph (A) or (B) of section
213(d)(1)) attributable to emotional distress.

(b) Termination of application of subsection (a)(4) in certain cases

(1) In general

Subsection (a)(4) shall not apply in the case of any individual who is not described in paragraph (2).

(2) Individuals to whom subsection (a)(4) continues to apply

An individual is described in this paragraph if—

(A)on or before September 24, 1975, he was entitled to receive any amount described in subsection (a)(4),

(B)on September 24, 1975, he was a member of any organization (or reserve component thereof) referred to in subsection (a)(4) or under a binding written commitment to become such a member,

(C)he receives an amount described in subsection (a)(4) by reason of a combat-related injury, or

(D)on application therefor, he would be entitled to receive disability compensation from the Veterans’ Administration.

(3) Special rules for combat-related injuries

For purposes of this subsection, the term “combat-related injury” means personal injury or sickness—

(A)which is incurred—

(i)as a direct result of armed conflict,

(ii)while engaged in extrahazardous service, or

(iii)under conditions simulating war; or

(B)which is caused by an instrumentality of war.

In the case of an individual who is not described in subparagraph (A) or (B) of paragraph (2), except as provided in paragraph (4), the only amounts taken into account under subsection (a)(4) shall be the amounts which he receives by reason of a combat-related injury.

(4) Amount excluded to be not less than veterans’ disability compensation

In the case of any individual described in paragraph (2), the amounts excludable under subsection (a)(4) for any period with respect to any individual shall not be less than the maximum amount which such individual, on application therefor, would be entitled to receive as disability compensation from the Veterans’ Administration.

(c) Application of prior law in certain cases

The phrase “(other than punitive damages)” shall not apply to punitive damages awarded in a civil action—

(1)which is a wrongful death action, and

(2)with respect to which applicable State law (as in effect on September 13, 1995 and without regard to any modification after such date) provides, or has been construed to provide by a court of competent jurisdiction pursuant to a decision issued on or before September 13, 1995, that only punitive damages may be awarded in such an action.

This subsection shall cease to apply to any civil action filed on or after the first date on which the applicable State law ceases to provide (or is no longer construed to provide) the treatment described in paragraph (2).

(d) Cross references

(1)For exclusion from employee’s gross income of employer contributions to accident and health plans, see section
106.

(2)For exclusion of part of disability retirement pay from the application of subsection (a)(4) of this section, see section
1403 of title
10, United States Code (relating to career compensation laws).

Section 808 of the Foreign Service Act of 1980, referred to in subsec. (a)(4), is Pub. L. 96–465, title I, § 808,Oct. 17, 1980, 94 Stat. 2110, which is classified to section
4048 of Title
22, Foreign Relations and Intercourse.

Amendments

2002—Subsec. (a)(5). Pub. L. 107–134substituted “a terroristic or military action (as defined in section
692(c)(2)).” for “a violent attack which the Secretary of State determines to be a terrorist attack and which occurred while such individual was an employee of the United States engaged in the performance of his official duties outside the United States.”

1996—Subsec. (a). Pub. L. 104–188, § 1605(b), in closing provisions, substituted “For purposes of paragraph (2), emotional distress shall not be treated as a physical injury or physical sickness. The preceding sentence shall not apply to an amount of damages not in excess of the amount paid for medical care (described in subparagraph (A) or (B) of section
213(d)(1)) attributable to emotional distress.” for “Paragraph (2) shall not apply to any punitive damages in connection with a case not involving physical injury or physical sickness.”

Subsec. (a)(2). Pub. L. 104–188, § 1605(a), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness;”.

Subsec. (a)(3). Pub. L. 104–191inserted “(or through an arrangement having the effect of accident or health insurance)” after “accident or health insurance”.

Subsecs. (b), (c). Pub. L. 94–455, § 505(b), added subsec. (b), redesignated former subsec. (b) as (c) and, as so redesignated, § 1901(a)(18)(B), substituted “1403 of title 10, United States Code (relating to career compensation laws)” for “402(h) of the Career Compensation Act of 1949 (37 U.S.C. 272(h))”.

1962—Subsec. (a). Pub. L. 87–792inserted sentence requiring contributions made on behalf of an individual who is, or has been, an employee within the meaning of section
401(c)(1), while he was such an employee to a trust which is exempt from tax, or under a plan described in section
403(a), to be treated as contributions by the employer which were not includible in the gross income of the employee.

1960—Subsec. (a)(4). Pub. L. 86–723provided for exclusion from gross income of amounts received as a disability annuity payable under the provisions of section 831 of the Foreign Service Act of 1946, as amended.

Change of Name

Reference to Veterans’ Administration deemed to refer to Department of Veterans Affairs pursuant to section 10 ofPub. L. 100–527, set out as a Department of Veterans Affairs Act note under section
301 of Title
38, Veterans’ Benefits.

Pub. L. 107–134, title I, § 113(c),Jan. 23, 2002, 115 Stat. 2435, provided that: “The amendments made by this section [amending this section and section
692 of this title] shall apply to taxable years ending on or after September 11, 2001.”

Effective Date of 1996 Amendment

Pub. L. 104–191, title III, § 311(c),Aug. 21, 1996, 110 Stat. 2053, provided that: “The amendments made by this section [amending this section and section
162 of this title] shall apply to taxable years beginning after December 31, 1996.”

“(1) In general.—Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to amounts received after the date of the enactment of this Act [Aug. 20, 1996], in taxable years ending after such date.

“(2) Exception.—The amendments made by this section shall not apply to any amount received under a written binding agreement, court decree, or mediation award in effect on (or issued on or before) September 13, 1995.”

“(1) In general.—Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply to amounts received after July 10, 1989, in taxable years ending after such date.

“(2) Exception.—The amendment made by subsection (a) shall not apply to any amount received—

“(A) under any written binding agreement, court decree, or mediation award in effect on (or issued on or before) July 10, 1989, or

“(B) pursuant to any suit filed on or before July 10, 1989.”

Effective Date of 1980 Amendment

Amendment by Pub. L. 96–465effective Feb. 15, 1981, except as otherwise provided, see section 2403 ofPub. L. 96–465, set out as an Effective Date note under section
3901 of Title
22, Foreign Relations and Intercourse.

Effective Date of 1976 Amendment

Amendment by section 505(b) ofPub. L. 94–455applicable to taxable years beginning after Dec. 31, 1975, see section 508 ofPub. L. 94–455, set out as a note under section
3 of this title.

Amendment by section 1901(a)(18)(A) ofPub. L. 94–455applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) ofPub. L. 94–455, set out as a note under section
2 of this title.

Effective Date of 1962 Amendment

Amendment by Pub. L. 87–792applicable to taxable years beginning after Dec. 31, 1962, see section 8 ofPub. L. 87–792, set out as a note under section
22 of this title.

Effective Date of 1960 Amendment

Pub. L. 86–723, § 56(e),Sept. 8, 1960, 74 Stat. 848, provided that: “The amendment made by section 51 of this Act [amending this section] shall be effective with respect to taxable years ending after the date of enactment of this Act [Sept. 8, 1960].”

Transfer of Functions

Secretary of Health, Education, and Welfare redesignated Secretary of Health and Human Services by section
3508 of Title
20, Education.

Functions of Public Health Service, Surgeon General of Public Health Service, and all other officers and employees of Public Health Service, and functions of all agencies of or in Public Health Service transferred to Secretary of Health, Education, and Welfare by 1966 Reorg. Plan No. 3, 31 F.R. 8855, 80 Stat. 1610, effective June 25, 1966, set out in the Appendix to Title 5, Government Organization and Employees.

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